A California law that allows the state to seize unclaimed property after three years without making much of an attempt to contact the owners will not be reviewed by the U.S. Supreme Court, but Justice Samuel Alito warned that such laws could face a serious constitutional challenge in the future.

The "convoluted history" of the lawsuit seeking to overturn California's Unclaimed Property Law made it a bad candidate for appeal to the Supreme Court, Alito wrote in a concurrence to the court's decision not to hear the case.

Property of the state? (Photo by Jeff J Mitchell/Getty Images)

"But the constitutionality of current state escheat laws is a question that may merit review in a future case," Alito wrote in a note joined by Justice Clarence Thomas. Among other problems challengers have cited, California sends "notice" to owners of unclaimed property by mailing it to the same stale address that established the fact it was "unclaimed" in the first place.

Escheat laws have become a popular source of revenue for states, raising billions of dollars a year. The process is turbocharged by paying commissions to private firms to scare up bank accounts, utility deposits, safe deposit boxes and other property that has seemingly been abandoned by its owners. Like the death tax, it's a convenient way to seize assets when their possession is in transition, in this case from a bank or other institution to a state-run fund for unclaimed property.

As in many other states, California has tightened the period for establishing "unclaimed" assets, from 15 years when the UPL was first passed in 1959 to seven years in 1976, five in 1988 and three years since 1990. Along the way it loosened its notice procedure, eliminating notice entirely for items worth less than $50 and running generic 3"X5" newspaper ads directing readers to a state website to look up property they suspect might be theirs. Property the state can't sell, such as wills, military medals and other items, is destroyed. Seizures rose from $2.7 billion in 2001 to $7.6 billion currently.

The Ninth Circuit Court of Appeals issued an injunction in 2007 halting the state process, saying challengers stood a good chance of winning under the Due Process Clause because the controller didn’t give sufficient notice to property owners before seizure. The California Legislature responded by passing a law requiring the state to notify owners before seizing property and an 18-month “waiting period” before sale or disposal. The state then moved to lift the injunction and the Ninth Circuit agreed.

In a brief penned by lawyers including Lawrence Tribe of Harvard Law School, challengers urged the Supreme Court to grant certiorari because "the UPL is a recipe for abuse.”

“Unknown” property owners include Presidents George W. Bush and Barack Obama and two of the Ninth Circuit judges who heard the case.

The state has little trouble finding residents when it wants them to pay taxes, using the Department of Motor Vehicles databases and other sources, they said. “Inexplicably, the State is not able to find millions of its own citizens” when it comes to unclaimed property, they argued, even though the state then uses the same databases to verify the identity of owners who do come forward to claim it.

Alito seemed to agree.

This trend — combining shortened escheat periods with minimal notification procedures — raises important due process concerns. As advances in technology make it easier and easier to identify and locate property owners, many States appear to be doing less and less to meet their constitutional obligation to provide adequate notice before escheating private property . Cash-strapped States undoubtedly have a real interest in taking advantage of truly abandoned property to shore up state budgets. But they also have an obligation to return property when its owner can be located.

In another property-related denial, Justice Thomas wrote that a case challenging a California municipal ordinance requiring apartment developers to set aside "affordable" units was inappropriate for review but the issue merits closer scrutiny. The California Supreme Court upheld the San Jose ordinance -- requiring owners of new apartment complexes to provide below-market rents on 15% of their units for 45 years -- under a theory it was an ordinance and not an administrative action.

Thomas said there should be no such distinction under the Supreme Court's previous rulings requiring a "nexus" between a government action with the effect of taking property and the impact of a proposed use upon the public. California argued the ordinance bears “a reasonable relationship to the public welfare.”

I am a senior editor at Forbes, covering legal affairs, corporate finance, macroeconomics and the occasional sailing story. I was the Southwest Bureau manager for Forbes in Houston from 1999 to 2003, when I returned home to Connecticut for a Knight fellowship at Yale Law Sc...